In Europe and Asia, peak winter buying has been wrapped up, with the recent Ukraine crisis having little impact. South American and Mideast counter-seasonal buyers are entering the scene, but it appears that in Brazil at least buying will not be as strong as last year.

Appalachian Shale Bottlenecks Increasingly Visible

With rapidly increasing gas processing capacity set to unleash more production from the Utica Shale, existing pipeline takeaway options may prove insufficient given the growing needs of Marcellus producers. Diminishing remaining options to nearby markets have kept producers busy making financial commitments to underwrite projects that would gain access to other markets. The next major round of development is primarily aiming to reach markets in the Midwest and South almost entirely via backhauls and/or flow reversals as well as greater access to eastern Canada. Yet, this very large-scale future expansion of take-away capacity will not be ready until late 2015 / early 2016.

Gas Fundamentals Becoming More Bearish

Ukrainian crisis or not, gas fundamentals are becoming more bearish by the day. The one-day rally on Ukraine may well be repeated in the weeks to come with additional one-day rallies, but it is clear to PIRA that no one wants Europe to be deprived of Russian gas flows on either side of this dispute. And when neither side benefits from a cut-off, it is exceedingly unlikely that one will occur. The goal here is not to ignore the significance of the Russia-Ukraine relationship on European gas markets, but to understand it in the commercial realities of the broader current supply/demand balances. The Ukrainian corridor for Russian gas exports is not as important as it used to be, but still plays a central role in European gas supply. PIRA's analysis of pipeline flows shows that Russia can divert a little over half of the gas it moves through Ukraine to locations all over Europe. A special feature published earlier this week on the ENG portion of the website details the pipeline flows at risk.

NYC-based PIRA Energy Group reports that large oversupply in electricity markets will further squeeze dark spreads. In the U.S., while the gas storage deficit continues to expand, and regional gas prices oscillate, the 12-month strip stands at $4.67/MMBtu. Specifically, PIRAs analysis of electricity and coal market fundamentals has revealed the following:

Large Oversupply in Electricity Markets Will Further Squeeze Dark Spreads

2013 financial results being announced so far are illustrating the deep crisis of conventional generation across Europe. While lignite and coal are joining gas in no longer being immune from surges in renewable output, generators are also admitting that lower fossil fuel utilization is an irreversible trend. Considering that a solution to the large oversupply in the major European power market is not in sight, why are the German clean dark spreads not narrowing even further down to pre-Fukushima levels?

A Stout Storage Withdrawal

An astoundingly stout withdrawal of 152 BCF was reported in todays EIA update, a figure coming in at the highest end of a market range expecting a draw in the mid-to-high 130s. Besting both the year-ago (149 BCF) and the five-year average pull (105 BCF), the report stoked some bullish enthusiasm in the nearby NYMEX contract, which has otherwise been anemic at best of late. The April contract jumped by more than a dime on the news and managed to finish the session with a gain of ~12¢.

Headwinds Abound for Global Thermal Coal Pricing

Coal pricing was mixed last week, with prices for FOB Newcastle (Australia) and API#4 (South Africa) falling, while API#2 (Northwest Europe) rebounded somewhat. The strength in API#2 was likely largely due to the escalation of tensions in Ukraine and worries that Russian gas volumes to Europe would be curtailed. With South African coal supply returning to normal and Colombian exports headed that way in the next month; it will be hard for coal prices to appreciate rapidly.

The information above is part of PIRA Energy Group's weekly Energy Market Recap, which alerts readers to PIRAs current analysis of energy markets around the world as well as the key economic and political factors driving those markets.